Operator: Our next question comes from the line of Mike Hickey with Benchmark. Please proceed.
Mike Hickey: Hey, Strauss, Karl, Lainie and Nicole. Great quarter guys. Thanks for taking my questions Two questions. The first one, Strauss, I’d be curious sort of your updated thoughts on AI here. It seems like the technology is — at least the unlock here is accelerating in some of the use cases that we’re seeing in terms of product and productivity seems very remarkable. So just curious what you’re thinking there, if that’s different or not? And then the second question, on the trailer in early December, curious what sort of impact you could think — you think that might have on other Rockstar product catalog product. Obviously, it’s already been strong. And I’m curious if that would be a catalyst boost for your catalog. And I’m curious on Grand Theft Auto Online, the sort of the strategic value of that live service given the vitality it has into the release of GTA next. Obviously, that’s the set up you haven’t experienced before. Thanks, guys
Strauss Zelnick: Mike, look, we’ve been in the AI business since the dawn of this industry. Our entertainment properties are created largely in and by computers, and we value tools and we create those tools internally, and we license external tools as well, and the new developments in AI are really exciting. And I’ve said publicly and repeatedly that I believe that they’ll help create efficiency and in certain instances, allow us to do things that we haven’t been able to do before. But it’s going to allow that for our competitors as well. So I think the tool sets that come out of these recent developments will be commoditized quickly. And the efficiencies that we see, others will see. Do I think that generative AI is going to make hit games?
No. Do I think that the need for creative people will go away? Absolutely not. I think, if anything, better tool sets just raise the bar. They give us the opportunity to do more and do better. So the changes will be menial work probably is reduced or eliminated, high-level work is enhanced in importance. So I think you’ll see shifts in what we can do with our games. So you mentioned product. I think you’ll see some shifts in product, positive ones, I hope. And you mentioned productivity, and I think you will, for sure, see shifts in productivity, but I’m not sure those shifts will drop to the bottom line because typically, when we’ve generated productivity with tool sets, we’ve just set our sights higher. And that’s our story. Our strategy is to be the most creative, the most innovative and the most efficient company in the business and AI, I think, probably ticks all three boxes.
But don’t expect the price tags to go down, just expect everything to get better and competition probably to become more intense for people who are not able to avail themselves of the resources that we can afford. With regard to the expected trailer that Sam Houser posted about today, we’re as excited as anyone else. And do I think there will be an impact on our catalog revenue? Potentially. Things are already going really well in that space. And with regard to GTA Online, I mean, it’s one amazing story that here we are 10 years later after the initial release and GTA Online is going strong. Why is it going strong? Because it’s phenomenal and because Rockstar continues to supply content and updates and engage consumers and entertain them more effectively than, frankly, anyone else in the business.
As long as we keep doing that, we’ll be very well positioned, indeed.
Operator: [Operator Instructions] And our next question comes from the line of Clay Griffin with MoffettNathanson. Please proceed.
Clay Griffin: Yes, thanks. Good morning. I couldn’t help but notice that Nintendo announced a live action film, Zelda film. I know — for Strauss, I know this question comes up all the time. I guess maybe we’ll close it this way. What’s your relative willingness and perhaps even Rockstar’s willingness to partner and find ways to extend Red Dead Redemption IP, Grand Theft Auto IP, just because it has been so successful from a marriage perspective. Just wanted to get your updated thoughts on that.
Strauss Zelnick: We’ve spoken about this many times. If we’re willing to use the company’s balance sheet to make a movie or a television show, then in the event of great success, we would benefit from it. But we’re not prepared to use the company’s balance sheet that way because the risk/reward profile is unappealing to us. They’re very difficult businesses. I’ve been in them successfully. They’re super challenging. They’re not what we do. We’d much prefer the risk/reward profile of the business we’re in. So that means that the only way we can be in that business is through a license arrangement with a third party. And let’s put it in context. Mattel announced, they said that their profits — expected profits from licensing the Barbie IP for a movie would be about $125 million.
Now Barbie is a massive, massive hit and it’s extraordinary hit. So you don’t want to posit a massive hit and look at the numbers that way. Even in a really good news scenario, the license fees would be a fraction thereof for many of our properties, not really enough to be meaningful here. And we have to weigh that too against the risk of failure. And the hit ratios in the motion picture business are vastly lower than they are in the interactive entertainment business. Our hit ratios for console properties are in the 80% or 90%. The hit ratio for a well-run movie studio is around 30%, which is to say there’s a 70% chance that the movie that we license could fail. And so in success, the number, in terms of the benefit to our bottom line, is it’s not de minimis, it’s not 0, but it’s not really material to what we do around here.
And in failure, we run the risk of compromising the underlying intellectual property. So it’s a high bar. We have licensed 2 properties. We’ve licensed Borderlands to Lionsgate’s picture coming. We’ve licensed BioShock. We’re looking forward to that as well. And we have other titles in discussions, not anything ready to announce, but we’re going to be very, very selective and very careful.
Clay Griffin: Makes sense. Thanks.
Operator: And our next question comes from the line of Brian Fitzgerald with Wells Fargo.
Brian Fitzgerald: We’ve been seeing more discussion of intrinsic in-game advertising, things like in-game billboards. And it seems like brand advertisers are getting more and more comfortable with in-game advertising. What are your thoughts on the broader opportunity there beyond mobile, beyond games within games, and maybe as well as your outlook for take this owned ad business and how that evolves? Thanks and Congrats on the quarter.
Strauss Zelnick: Thanks. I mean you understand what we’re already doing in mobile. So I don’t think you want me to cover that. You alluded to that. With regard to console titles, we have advertising when it makes sense creatively and feels organic to the title. So for example, in NBA, if you go to a basketball game, you’re going to see advertising in the arena. So it’s perfectly reasonable to see the same kind of advertising in our game. But we’re not going to do product placement where it’s inappropriate, so that we can create a small amount of revenue. First of all, the numbers aren’t huge. But secondly, anything that we do that takes a consumer out of the experience is problematic. So years ago, and I don’t mean to take a potshot, but I’ll do it anyhow.